I figured I'd jack one tire up off the ground to check for proper engagement and disengagement. Turns out both hubs are keeping the axles locked into the tires when I spin the tires (one at a time). I suppose all of those times that I had the hubs off must have changed something in them. They always whent back on fine and seemed to turn fine, so I never gave it a second thought.

Is there any other reason why the axle turns with the tire (some kind of friction absent of them being locked in?) other then the hubs need to be taken apart and looked at?

Could be too much grease inside (if they were recently rebuilt). Grease can cause a suction that holds the locking gear in place resisting the spring that retracts it. Or the cap may be on improperly. As I recall, there are a few ways it;ll go on, but only one way that it works right.

I always thought you needed to use 10w30 oil or so on the outer lock ring for lube, anything else just bungs up the operation.

I haven't ever rebuilt them, but I do remember one time when one or both of them kind of "came apart" a bit when I had it/them off. I remember fiddling with it/them, trying to get them back on so that they would turn freely. BUT, apparently I didn't get them on right.

I do remember regreasing one or both of them, and it's very possible I over did it. However, they do turn, so my guess is the problem is in the mechanism itself. I'll have to research how they go together.

The dial will turn fine w/ too much grease, it just doesn't do anything. It pushes the gear in when you lock them, but it is a spring that pushes the gear out when you unlock them and if much more than a thin film of lube, the tight fit in there can create enough suction to hold the gear in place. Easy enough to pup the cover off and check out what is going on.

Sounds good. I'm replacing a head gasket now, and I'll most likely get to checking those hubs when I'm done.